Receive the Full Benefit of Charitable Giving for the Holidays
From the MO Planning business and estate planning blog by Austin Dowling and Steve Bahr
There is an ongoing trend of Americans increasing their amount of charitable giving, and the holidays are a popular time to engage in charitable giving as it is just prior to the end of the tax year. Tax deductions are an extra incentive to make charitable contributions, along with the impact the contributions have on the less fortunate. There are several things you should keep in mind to ensure that you maximize the value of your donations this holiday season:
Remember to give before the deadline
To receive tax deductions on this year’s tax return, you need to make your charitable contributions before the year-end deadline of December 31st. Donations made after this will be pushed back to the following year’s tax return. You will also want to be sure to get a receipt for donations of property or cash as proof of the donation.
Make a plan for your charitable giving and stick to it
While the impulse for giving out of kindness can sometimes strike unexpectedly during the holidays, it is important not to give so much that you over-extend your personal finances. By taking the time to create a budget, you will be able to donate to your favorite charities without giving away more money than you intended.
Donate to charities recognized as tax exempt by the IRS
If you are concerned about receiving a deduction for your charitable contribution, you need to make sure that you are donating to organizations that are tax exempt according to the IRS. Not all charities and nonprofits are eligible to receive donations that are tax deductible, and that is not always clear. Fortunately, the IRS has an online tool to help you determine which charities to which you can donate in order to receive tax deductions.
Give appreciated assets like stock or real estate to receive a double benefit
By donating an asset that you have owned for at least a year, you can deduct the asset’s fair market value and avoid paying capital gains tax on it. However, if you donate a stock you have held for less than a year, you will only be able to receive a deduction for the price of the stock when you bought it, regardless of its value. You will also need to be sure that you have a written appraisal of fair market value of the property you are donating.
Be mindful of deduction limits based on your Adjusted Gross Income (AGI)
The IRS generally allows you to deduct up to 50% of your AGI, but the limit may be 20% or 30% depending on the circumstances. Make sure that your charitable giving budget takes this into consideration so you do not donate more than that for which you can receive a deduction.
By following these guidelines, you will be able to give to your favorite charities while receiving valuable tax deductions.